I published this post the last couple of years for the Fourth.  Hopefully I’ll be able to keep publishing it for many years to come.  Wishing you a great Fourth, and hope you have some time to put aside your work for a bit and enjoy some time with your family.  Happy Fourth!

Five things I’m thankful for this Fourth of July:

1.     For the great risk and sacrifice our Founding Fathers took to establish the country. 

When learning about the Founding Fathers in high school history class I did not have a perspective about the risks the Founders took in establishing the country.  Only now that I have a business, a family, and am relatively successful, can I realize the huge risks the Founders took.  By all means, they were the establishment, the elite of the American society, and if anyone had an interest in preserving the status quo, it was them.  Their sacrifices of life (theirs and their family members) and their fortunes helped build the foundation we benefit from today.

2.     The ability to speak freely and practice or not practice any religion I want.

It is great being able to freely speak your mind and believe in whatever you want.  It is also great be free to practice (or not) any religion you want.  We live in a very tolerant society, and it is even better when the government is not telling you how to live your life.  It is important to remember that throughout history, this has been the exception for how a government normally behaves.

3.     Our Country’s ability to attract creative people.

People that like creating things and being productive want to practice their trade where the government will basically leave them alone and provide a good environment to protect their gains derived from their hard effort (see item #5 below).  The U.S. provides this environment, and that is why so many people come to the U.S. to create a business or to practice their trade.  It is also important to recognize how lucky we are to have been born in the U.S.

4.     My right to practice any profession and access to unlimited resources to learn the required skills.

No one is dictating what students need to be after they graduate high school or college.  Everyone is free to pursue their interest, and the market decides the value of the effort.  With basically any information freely available on the Internet, anyone can learn almost any skill, and like no other time in human history individuals have an almost free method to sell their services or products over the Internet.  In your mid-40’s and want to make a career change?  Perfect, and you don’t even need to go back to school as the information is freely available on the Internet.  Didn’t finish college and are 20 years old with an idea?  Perfect.  Venture capitalists don’t care about your pedigree, they are only interested if you work hard and don’t give up.

5.     Our legal system.

Yes, it sounds trite.  But while I don’t think our legal system is perfect by any means, it is the best system established in the history of mankind.  Everyone living in the U.S. presently is very lucky to have this benefit.  It is a foundation for many of the items I mentioned above.  Because people have a good basis for predicting the outcomes of their actions, such as being able to retain property legally obtained, and knowing if someone breaches a contract there will be repercussions, it creates an environment that attracts hard effort and the best talent from around the world.  This is why the U.S. has been the leader in ideas and new businesses.  However, just because the system is established it does not mean our work is done.  We have to be vigilant not to lose the fairness, reasonableness, and lack of corruption in legal system.

Happy Fourth of July. I’m off to the neighborhood parade.

Finding an attorney who can help an owner, CEO, or president manage business issues can be a stressful situation if not approached correctly.  Below are five recommendations about what to look for when hiring an attorney, and when an attorney should be engaged (hint: sooner than later).

1. Personality fit is key

Just like any other high-stakes, high-stress relationship, how you get along with your attorney is one of the most fundamental aspects to the relationship.  I’m not saying you have to be able to be best friends with your attorney, but do you learn new things from them when you speak?  Also, consider whether or not  you enjoy calling your attorney.  If you dread speaking with your attorney, you will use them less, and this could cost you a lot of money in the long run.  Your attorney needs to be a trusted advisor that you feel comfortable reaching out to for advice.

Also, the attorney’s personality and how they treat you as a client is a key indicator on how they treat the attorneys on the other side of the deal or in litigation.  Most clients say they want the scorched-earth, brass-knuckles attorney representing them, but in reality, business deals and even litigation (at its core litigation is a business transaction), usually need to be resolved when reasonable people reach a compromise.  If your litigation attorney is billing by the hour and never seems interested in considering how to resolve the case sooner than later, it should raise some concerns.  Likewise, if your business attorney is not working on a flat fee and has issues with every single negotiation point in a deal, this could be a concern.

2. Ask friends and contacts for referrals

If you do not know any attorneys, ask your contacts in your industry for a referral.  If you have a trusted attorney that does not practice the particular issue you need help with, ask that attorney for a referral.  As discussed below, the legal industry is becoming very specialized, and attorneys that routinely practice in the area you need assistance with are critical.

3. Engage attorneys with experience in your industry

Just as important as the attorney’s experience in the practice area, it is equally important to find an attorney with experience in your industry.  If you operate a restaurant, your issues will be much different than the owner of a start-up software company.  Employment laws do not generally change based on which industry your company operates in, but there are some exceptions to this general rule.  Moreover, an attorney that has worked in your industry will be able to bring the experience of previously dealing with the issue, and will be better positioned to understand what to expect two or three steps in the future.

4. Seek lawyers with specializations

For example, I can determine within about five minutes if I’m dealing with opposing counsel who do not routinely litigate employment cases.  Likewise, I would be the first one to admit that I am not the attorney to negotiate your next lease.  Clients save a lot of money when hiring attorneys with experience in the area they need assistance in – many of the routine issues are already understood by the attorney and do not have to be researched.  Generally, a company will typically require the following types of attorneys:

  • Corporate attorney to assist with forming a corporation, raising money from investors, and stock issues.
  • Employment attorney to set up employment policies, such as handbooks, set up and audit pay practices to ensure everyone is properly classified, and to be available for routine advice and counseling issues that will come up from time-to-time.
  • Tax attorney to work with your other attorneys and accountants to advise on tax implications on various transactions and how best to structure the transactions to minimize the tax implications.
  • Intellectual property attorney when dealing with any copyright, trademark, or patent issues.
  • Real estate attorney to review leases or agreements to buy/sell buildings or land.

5. Engage a lawyer before you need them

Once you realize that an attorney will likely be needed for your business, engage the attorney for some small issues.  Make sure your personalities match, see if the attorney provides good value to your company, and get a general sense of the attorney.  In the employment context, it is also a good time for the attorney to get a sense of the company’s policies, meet  people in the human resources department, and potentially review and update the employee handbook.  This general knowledge is helpful when a critical issue arises, and important decisions must be made with your attorney on a very tight timetable.  It is much more comfortable to have at least the beginnings of a relationship with the attorney established, before your company is trusting this advisor with issues that could have significant consequences.

Employers considering implementing non-competition and non-solicitation agreements for their California workforce must understand the differences in these agreements, and California’s public policy against restraints against an employee’s ability to work in their profession or trade.  This Friday’s Five covers five issues that employers should understand regarding non-competition and non-solicitation agreements in California.

1. Non-competition and non-solicitation agreements cannot violate Business & Professions Code section 16600

In California, non-competition agreements are governed by Business & Professions Code section 16600, which states: “Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” The statute permits non-competition agreements in the context of sale or dissolution of corporations (§ 16601), partnerships (§ 16602), and limited liability corporations (§ 16602.5).  But other than these narrow exceptions connected with the sale or dissolution of a company, California has a strong public policy against non-competition agreements.

Under the common law, as still recognized by many states today, contractual restraints on the practice of a profession, business, or trade, were considered valid, as long as they were reasonably imposed.

2. California Supreme Court ruling in Edwards v. Arthur Andersen regarding non-competition agreements

In 2008, the California Supreme Court ruled on the enforceability of non-competition agreements under California in Edwards v. Arthur Andersen LLP. Arthur Andersen argued that California courts have held that section 16600 embraced the rule of reasonableness in evaluating competitive restraints.

The Court disagreed with Arthur Andersen and held that the non-competition agreement at issue in the case was invalid under California law.  The agreement prohibited the employee from performing professional services for any client he worked with at Arthur Andersen for an 18-month period.  It also prohibited the employee from soliciting any client of Arthur Andersen’s Los Angeles office.  The Court held that these prohibitions restricted the employee’s ability to practice his accounting profession, and therefore was unenforceable under California law.

3. California Supreme Court refused to recognize the “narrow-restraint” exception in non-competition agreements

Arthur Andersen argued that section 16600 has a “narrow-restraint” exception and that its agreement with Edwards survives under this exception because the restraints against the employee were narrow and reasonable.  Arthur Andersen argued that the federal court in International Business Machines Corp. v. Bajorek (9th Cir. 1999) upheld an agreement mandating that an employee forfeits stock options if employed by a competitor within six months of leaving employment. Arthur Andersen also noted that a Ninth Circuit federal court in General Commercial Packaging v. TPS Package (9th Cir. 1997) held that a contractual provision barring one party from courting a specific customer was not an illegal restraint of trade prohibited by section 16600, because it did not “entirely preclude[]” the party from pursuing its trade or business.

In rejecting Arthur Andersen’s argument, the California Supreme Court refused to recognize the “narrow-restraint” exception for noncompetition agreements in California:

Contrary to Andersen’s belief, however, California courts have not embraced the Ninth Circuit’s narrow-restraint exception. Indeed, no reported California state court decision has endorsed the Ninth Circuit’s reasoning, and we are of the view that California courts “have been clear in their expression that section 16600 represents a strong public policy of the state which should not be diluted by judicial fiat.” [citation] Section 16600 is unambiguous, and if the Legislature intended the statute to apply only to restraints that were unreasonable or overbroad, it could have included language to that effect. We reject Andersen’s contention that we should adopt a narrow-restraint exception to section 16600 and leave it to the Legislature, if it chooses, either to relax the statutory restrictions or adopt additional exceptions to the prohibition-against-restraint rule under section 16600.

4. Customer non-solicitation agreements

There are two types of non-solicitation agreements: one that restricts the employee’s ability to solicit customers and another that restricts the employee’s ability to solicit employees (see item #5 below).

In regard to customer non-solicitation agreements, as set forth above, the California Supreme Court in Edwards v. Arthur Andersen ruled that a prohibition on a former employee’s solicitation of clients was an invalid restraint on the employee’s ability to pursue his trade or business.  Similarly, in 2009, a California appellate court in Dowell v. Biosense Webster, Inc. held that a broadly worded non-solicitation clause that prohibited an employee for a period of 18 months postemployment from soliciting any business from, selling to, or rendering any service directly or indirectly to any of the accounts, customers or clients with whom they had contact during their last 12 months of employment was void under section 16600.  In Dowell, the court rejected the employer’s argument that the agreement was enforceable under the trade secret exception because it found the non-solicitation provision was “not narrowly tailored or carefully limited to the protection of trade secrets, but are so broadly worded as to restrain competition.”

5. Employee non-solicitation agreements

Employee non-solicitation clauses can also be found to violate section 16600 if drafted too broadly and it in effect becomes an invalid restraint on the employee’s ability to work in their profession or trade.  However, the court in Loral Corp. v. Moyes (1985), ruled that the agreement at issue was more of a “noninterference agreement” between the employer and former employee.  It upheld the noninterference agreement that prevented the former employee from soliciting employees from the employer, and even though the agreement did not have a time limitation, the court interpreted the agreement to apply a one-year limit.

Likewise, the California Supreme Court held in Reeves v. Hanlon (2004) that a law firm employer could establish a claim for interference with prospective economic advantage against former attorneys who left the firm and solicited employees.  However, the Court noted, “that to recover for a defendant’s interference with an at-will employment relation, a plaintiff must plead and prove that the defendant engaged in an independently wrongful act—i.e., an act ‘proscribed by some constitutional, statutory, regulatory, common law, or other determinable legal standard’” that induced the solicited employees to leave their employment.

California employers are cautioned to carefully review all agreements that restrict former employees’ ability to compete and solicit customers and employees to ensure the restrictions do not violate California’s strong public policy in allowing employees to perform their chosen profession or trade.

With June gloom bearing down on us here in Southern California, it may not feel like it outside, but July is right around the corner.  As written about previously here, many local city and county minimum wage requirements will increase on July 1, 2019.  California employers should review a few items to ensure the increase in minimum wage does not catch them off guard.  Here are five reminders to start the process of ensuring compliance with the July 1 deadline:

1. Ensure the company understands which city and county they are located within.

Many of the cities and counties provide resources to help companies determine if they are located within the city’s or county’s jurisdiction.  For example, the City of Los Angeles provides this resource.

2. Ensure employees who travel and work in other cities and counties are being paid the appropriate minimum wage.

Many of the local ordinances that require a higher minimum wage than the state minimum wage set forth when the city or county law will cover an employee who works within its jurisdiction.  For examples, Santa Monica and the City of Los Angeles assert jurisdiction over employees who work within their jurisdiction for two hours a week:

  • Santa Monica:  Law applies to any employee working a minimum of two hours within Santa Monica in a given week (even if employer is located outside of Santa Monica).
  • City of Los Angeles: Ordinance applies to “[a]n employee … who performs at least two hours of work in a particular week within the City of Los Angeles….”

Employers should review the various jurisdictions that their employees may travel into to ensure compliance with those requirements.

3.Ensure pay stubs reflect the increased minimum wage.

The DIR provides an example of a pay stub for an hourly employee the meets all of the required items under Labor Code section 226:


Ensure that all employees earning minimum wage who are covered by an local minimum wage increase on July 1, 2019 are updated to reflect the increased minimum wage amounts.

4. Update posters to ensure the compliant posters are being used in the workplace.

Many local cities and counties have issued updated posters to reflect the increased minimum wage as of July 1, 2019.  Employers should review to ensure they are using the most current versions of the posters as of July 1, 2019.  Here are a few links to cities and county posters in Southern California:

County of Los Angeles required notices:

City of Los Angeles required notices:

Pasadena’s required notices:

Santa Monica’s required notices:

  • July 1, 2019 Legal notice (English) (Spanish) (note that employers in Santa Monica are required to post both English and Spanish notices, even if they do not employ any Spanish speaking employees.
  • Posters in other languages can be downloaded here.

Malibu’s required notice:

City of San Diego’s required notices:

5. Update notices to employee who are hired on or after July 1, 2019.

Notices to Employee required under Labor Code section 2810.5 must be issued to all nonexempt employees when they start work.  The wage information section must reflect the higher minimum wage for minimum wage workers as of July 1, 2019.  Accordingly, the overtime rates of pay section of the Notice must also be updated to reflect the higher rates as a result of the higher minimum wage requirements.

Many local counties and cities are increasing the minimum wage that applies to employers within their jurisdiction on July 1, 2019.  Below is a list of some southern California counties and cities minimum wage requirements.  Some local governments require employers to update the required posters given the new increases taking effect on July 1, 2019 (see links below to posters).

County of Los Angeles

County of Los Angeles required notices:

City of Los Angeles

City of Los Angeles required notices:


Pasadena’s required notices:


Malibu’s required notice:

City of Santa Monica

Santa Monica’s required notices:

  • July 1, 2019 Legal notice (English) (Spanish) (note that employers in Santa Monica are required to post both English and Spanish notices, even if they do not employ any Spanish speaking employees.
  • Posters in other languages can be downloaded here.

City of San Diego

City of San Diego’s required notices:


It is important to note that most cities and counties require employers to post the posters in languages other than English if a certain percentage of employees speak a different language.  Most cities and county (but not all) make the posters in the alternative languages available on their websites.

Employers need to remember that even if their business is not located in a city or county that does not have a minimum wage or paid sick leave requirement, this does not mean your company can ignore the new laws.  Most of the ordinances require compliance with their local laws if any employee works two hours within the city or county even if the employer is not based within that city or county.  For example:

  • Santa Monica:  Law applies to any employee working a minimum of two hours within Santa Monica in a given week (even if employer is located outside of Santa Monica).
  • City of Los Angeles: Ordinance applies to “[a]n employee … who performs at least two hours of work in a particular week within the City of Los Angeles….”
  • County of Los Angeles: Ordinance applies to “[a]nyone who works at least two hours in a one-week period within the unincorporated areas of Los Angeles County is entitled to the County minimum wage for the hours worked in the unincorporated area of the County.”
  • Pasadena: Applies to employees who perform at least two hours of work in Pasadena.
  • Malibu: “This ordinance applies to employees who perform at least two hours of work in a particular week within the Malibu city limits.”
  • San Diego: Applies “to employees who perform at least two (2) hours of work in one or more calendar weeks of the year within the geographic boundaries of San Diego.”

This Friday’s Five is a video covering five common questions about severance agreements in California:

  1. When are severance agreements appropriate in California?
  2. What are common terms in severance agreements? Such as a non-disparagement clauses and reference clauses.
  3. How much of a payment is required to the employee in a severance agreement?
  4. What is a section 1542 waiver of all known and unknown claims?
  5. Can employers include confidentiality provisions in severance agreements?

When preparing a severance agreement, employers should also keep in mind the prohibitions on including confidentiality clauses in agreements that cover harassment claims.

The California legislature is setting its sights on limiting employers’ use of independent contractors in the gig economy.  A California bill, AB 5, sets to codify the California Supreme Court’s 2018 ruling in Dynamex v. Superior Court.  The bill passed the Assembly last week, and will need to be approved by both the Senate and the Governor before taking effect.

The California Supreme Court ruled in Dynamex that in order for a worker to be properly classified as an independent contractor, the company must establish the worker meets the ABC test:

  • Part A: Is the worker free from the control and direction of the hiring entity in the performance of the work, both under the contract for the performance of the work and in fact?
  • Part B: Does the worker perform work that is outside the usual course of the hiring entity’s business?
  • Part C: Is the worker customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity?

Here is a detailed article about the ruling in Dynamex v. Superior Court.

The bill currently exempts certain types of workers, such as hairstylists, real estate agents, certain investment advisers, licensed physicians and surgeons, licensed attorneys, dentists, architects, engineers and accountants.  However, the bill does not exempt rideshare companies, such as Uber or Lyft.

Employees are provided additional Labor Code rights than independent contractors for items such as minimum wage, meal and rest breaks, and overtime pay.  However, independent contractors are permitted more control over their work schedules and how they carry out their duties, which many workers in the gig economy prefer.  If independent contractors are required to be reclassified as employees, companies will have more control over when and where the workers perform their duties.  There is also concern that if the bill is passed, Uber and Lyft may not be able to operate in California.

California employers have many state and local hiring requirements in terms of the various notices that must be provided to new employees.  Employers should also carefully review the hiring documentation to ensure that additional documents that could benefit the company are also being provided to the new hires.  This Friday’s Five sets out five key areas that employers should consider in developing their own new hire checklist:

1. Offer letter. 

Offer letters should at least address the following items:

  • Terms of employment
  • Duties of the position
  • Start date
  • At-Will employment status
  • Exempt or non-exempt status
  • Wage or salary
  • Benefits, if any
  • Other conditions of employment (for example, applicant must pass a medical exam, drug test or background check)

2. Provide new hire with employee handbook and obtain signed acknowledgment of receipt.

3. Provide required forms and pamphlets.

California employers must provide the following documents for example:

  • I-9 Employment Eligibility Verification completed
  • W-4 federal and state tax withholding forms completed
  • Workers’ Compensation Time of Hire Pamphlet: Personal Chiropractor or Acupuncturist Designation Form and Personal Physician Designation Form
  • Sexual Harassment Pamphlet (DFEH-185P)
  • EDD Disability Insurance Pamphlet (Form DE 2515)
  • Paid Family Leave Pamphlet (Form DE 2511)
  • Wage and Employment Notice to Employees (Labor Code section 2810.5) (Form DLSE-NTE). This form is only required for non-exempt employees, and more information about the form can be read here.
  • New Health Insurance Marketplace Coverage Options and Health Coverage Form (Form OMB No. 1210-0149)
  • General Notice of Consolidated Omnibus Budget Reconciliation Act (COBRA) continuation coverage rights (if 20 or more employees and employer offers health plan)
  • Rights of Victims of Domestic Violence, Sexual Assault and Stalking Pamphlet
  • Work Permit for Minors (if applicable) (CDE Form B1-4)

Note that many of the state forms listed above must be given to the employee in their primary language.  Employers need to also check their local cities and counties to ensure that they are providing any other required documents.  For example, the City of San Diego requires employers to provide and have employee acknowledge receipt of the Earned Sick Leave and Minimum Wage Employee Notification Form.

4. File New Employee(s) Report within 20 days of date of hire (Form DE 34).

5. Complete any other employer-specific requirements or documents:

  • Arbitration agreement
  • Orientation/training documents
  • Confidentiality/non-disclosure agreement
  • Direct deposit form
  • Any other company specific forms

If there is a turning point for the esports industry, if it has not already occurred, it occurred this week.  A lawsuit filed last Monday in Los Angeles Superior Court by Turner Tenney, a 21-year old gamer known as Tfue, against Faze Clan, his gaming organization.  The lawsuit is an attempt by Tfue to void his contract with Faze Clan, and the case is a clear indication that esports interest is no longer limited to teenage boys.  Tfue is one of the world’s top players of Fortnite.  Faze Clan is an esports and entertainment organization that signs players to their teams to compete in Fortnite, Call of Duty, RainbowSix, Counterstrike Global Operations, and other games.  A quick look at the money these esports teams and players are generating shows how mainstream this industry has become.  In the media fallout since the lawsuit was filed, it has been reported that Tfue generates roughly $1 million per month in revenue only from his creator code, which does not include other sources of revenue such as endorsement deals and pay for appearances.  Tfue joined Faze Clan in 2018, and he has now filed a lawsuit alleging his contract with Faze Clan is invalid and unenforceable.

Esports industry has not been regulated, but the allegations in the lawsuit filed by Tfue have major implications for the esports industry, and not just for gamers and the organizations sponsoring the gamers.  Here are five issues involved in the lawsuit by Tfue and employment law implications the lawsuit may have for the entire gaming industry:

1. Tfue alleges Faze Clan violated California’s Talent Agency Act claiming that gamers are “artists” protected under the Act.

Dating back to 1913, California has had legislation protecting artists from unscrupulous agents and talent managers.  California’s Talent Agency Act (“TAA”) can be found in Labor Code section 1700 to 1704 and provides that talent agents :

  • be licensed (Labor Code section 1700.5),
  • submit its contracts to the Labor Commissioner for approval (Labor Code section 1700.23),
  • file fee schedules with the Labor Commissioner and post a copy in its office (Labor Code section 1700.24),
  • maintain records of fees earned from clients (Labor Code section 1700.26),
  • and prohibits certain activities such as sending artist to unsafe places or the employing minors (Labor Code sections 1700.32 – 1700.37).

Until this lawsuit, most of the litigation involving who is covered by the TAA involved who qualified as a “talent agency.”  However, the lawsuit filed by Tfue alleges that he is an “artist” who is covered by the TAA.  The term “artists” is defined by the statute as:

[A]ctors and actresses rendering services on the legitimate stage and in the production of motion pictures, radio artists, musical artists, musical organizations, directors of legitimate stage, motion picture and radio productions, musical directors, writers, cinematographers, composers, lyricists, arrangers, models, and other artists and persons rendering professional services in motion picture, theatrical, radio, television and other entertainment enterprises.

See Labor Code section 1700.4(b).  Tfue argues that he is a performer who creates on-line videos which “are viewed by millions, sponsors are willing to pay for Tenney to perform in and create videos that will, at least in part, promote their goods, services and brands.”

Under the TAA, unlicensed talent agencies “do not have authority to make binding promises on behalf of a performer” and therefore artists’ contracts with unlicensed talent agencies are non-binding and the artists can recover all fees earned by an unlicensed talent agency.  See Waisbren v. Peppercorn Productions, Inc., 41 Cal. App. 4th 246 (1995).

Therefore, if Tfue is able to establish that the TAA applies to gamers in the esports industry, he would be able to void his contract with Faze Clan, which is presumably not licensed as a talent agency under the TAA.  Reportedly under the contract, Faze Clan would be entitled to up to 80% of certain revenue streams generated by Tfue.

2. If the TAA applies to Tfue and other gamers, this ruling would have much broader ramifications to the entire gaming industry.

If Tfue is able to establish that he is a performer covered under California’s TAA, this would obviously cover other gamers and require esports organizations like Faze Clan to register under the TAA, and basically apply the entertainment industry regulations to this industry.

However, if the TAA applies to gamers, this could mean that the TAA also applies to the computer programmers writing the code for the games.  The TAA’s definition of “artists” includes “writers,” “composers,” “arrangers,” “and other artists and person rendering professional services in … other entertainment enterprises.”  This could have huge ramifications for the gaming companies that developed this software throughout California.

3. Tfue also alleges his contract with Faze Clan violated California’s prohibitions on competitive restraints.

The lawsuit also alleges that the contract entered into with Faze clan “contains several provisions that constitute illegal and anti-competitive restraints on trade in violation of [Business and Professions Code] section 16600.”  Employment contracts, non-competition agreements, and/or non-solicitation agreements can be challenged under Business and Professions Code section 16600.  That Section provides a very broad rule voiding any contract that limits an employee’s ability to engage in their profession:

Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.

Faze Clan may counter that the restraints in the contract meet one of the exemptions to section 16600.  For example, one exception to Section 16600’s prohibition on restraining an employee’s ability to work is if the restraint is narrowly drafted.  Restraints on the pursuit of “only a small or limited part of the business, trade or profession” have been upheld by California courts.  However, as the court in General Commercial Packaging, Inc. v. TPS Package Engineering, Inc. explained, “[A] contract does not have to impair a party’s access to every potential customer to contravene section 16600…. [A] contract can effectively destroy a signatory’s ability to conduct a trade or business by placing a substantial segment of the market off limits.”  General Commercial Packaging, Inc. v. TPS Package Engineering, Inc., 126 F.3d 1131, 1132–33 (9th Cir.1997).

There is also a strong public policy against enforcing agreements that restrict an employee’s ability to work in the profession they chose.  California Courts have noted, “the interests of the employee in his own mobility and betterment are deemed paramount to the competitive business interest of the employers ….”

4. Are gamers employees, independent contractors, artists, or equivalent to an athlete on a team?

With esports being so new, there are still a lot of open questions about how gamers should be classified.  However, given that the industry is so diverse, there could be an argument made that there cannot be one paradigm that covers all gamers.  This is not like the NFL or NBA, nor is it like the traditional entertainment industry either.  As set forth above, any determination on this issue could have huge impacts beyond gamers, and it could change how gaming companies who develop the software operate as well.

5. Another potential issue: Who owns the gamer’s name and social media accounts?

It does not appear to be an issue in the litigation filed by Tfue, but another potential issue surrounding gamers is who owns their on-line gamer names, social media accounts, and identities?  For example, in 2012, a case arose involving a dispute between an employer and an employee over who owned a Twitter handle.  In PhoneDog v. Kravitz, the employer filed a lawsuit against the former employee to recover the use of the Twitter handle and brought causes of action for (1) misappropriation of trade secrets, (2) intentional interference with prospective economic advantage, (3) negligent interference with prospective economic advantage, and (4) conversion.  While Tfue’s case does not apparently involve this issue, the value of these accounts will likely be an issue in future litigation.  Given the level of views and followers on these accounts, and potential for revenue streams from these types of accounts, the issue of who owns the account, should a dispute arise, is a critical issue that should be addressed between the gamer and the esports organizations.  More information about the PhoneDog v. Kravitz case can be read here.

In April 2019, a jury in a California federal court awarded plaintiffs over $6 million in damages for missed meal breaks. Hamilton et al. v. Wal-Mart Stores Inc. et al. (Case No. 5:17-cv-01415-AB-KK).  The case involved 5,000 employees who worked at Walmart’s fulfillment center in Chino, California.  Plaintiffs brought a class action against Walmart alleging violations of the Unfair Competition Law (“UCL”) for failing to (1) pay for all hours worked, (2) pay all overtime wages, (3) provide meal periods, (4) provide rest breaks, (5) pay final wages, and (6) provide accurate itemized wage statements.  Plaintiffs also sought penalties under California’s Private Attorney General Act (“PAGA”).

In August 2018, the court certified six subclasses of the class action:

  1. Alternative Workweek subclass which was comprised of all current and former employees during the class period who were not paid overtime for working over eight hours in a day or over forty hours in a week and were not paid overtime pursuant to the company’s alternative workweek.
  2. Overtime subclass which was comprised of all current and former employees who worked over eight hours in a day or more than forty hours in a week and were not paid all overtime.
  3. Meal break subclass
  4. Waiting time penalty subclass
  5. Wage statement subclass

1. Employers must relieve the employee of all duty for meal breaks.

In Brinker Restaurant Corp. v. Superior Court, the California Supreme Court set forth the requirement for employers to provide meal breaks is “to relieve the employee of all duty and relinquish any employer control over the employee and how he or she spends the time.” 53 Cal. 4th 1004, 1038-40 (2012).  “The employer satisfies this obligation if it relieves its employees of all duty, relinquishes control over their activities and permits them a reasonable opportunity to take an uninterrupted 30-minute break, and does not impede or discourage them from doing so.”

The Brinker court also established that employers do not need to ensure that employees took their 30-minute meal breaks.  The Brinker Court explained:

[Plaintiff] Hohnbaum contends an employer is obligated to “ensure that work stops for the required thirty minutes.” Brinker, in a position adopted by the Court of Appeal, contends an employer is obligated only to “make available” meal periods, with no responsibility for whether they are taken. We conclude that under Wage Order No. 5 and Labor Code section 512, subdivision (a), an employer must relieve the employee of all duty for the designated period, but need not ensure that the employee does no work.

The Court clarified that employers do not have to ensure that employees do not perform any work during their break:

The difficulty with the view that an employer must ensure no work is done—i.e., prohibit work—is that it lacks any textual basis in the wage order or statute. While at one time the IWC’s wage orders contained language clearly imposing on employers a duty to prevent their employees from working during meal periods, we have found no order in the last half-century continuing that obligation. Indeed, the obligation to ensure employees do no work may in some instances be inconsistent with the fundamental employer obligations associated with a meal break: to relieve the employee of all duty and relinquish any employer control over the employee and how he or she spends the time.

The Court provided that employers must meet the following requirements in order to meet their obligations of providing meal breaks: (1) provide the employee with at least 30 minutes uninterrupted, (2) permit the employee to leave the premises, and (3) relieve the employee of all duty for the entire period.

2. Plaintiffs in the Walmart case established that a security check required for employees to take meal breaks “discouraged employees from leaving the premises.” 

In this case, Walmart required the employees to complete a security check process when leaving the facility for lunch breaks.  Plaintiff’s alleged, and ultimately prevailed on the theory that this security checkpoint impeded or discouraged class members from taking compliant meal breaks as required under California law.

In ruling against Walmart’s motion for summary judgment, the court recognized that “Walmart is correct that an employer ‘is not obligated to police meal breaks and ensure no work thereafter is performed.’ Brinker, 53 Cal. 4th at 1040.  ‘Work by a relieved employee during a meal break does not thereby place the employer in violation of its obligations and create liability for premium pay.’ Id.”  The court however ruled that “Walmart’s security check arguably ‘impedes or discourages’ associates from taking an ‘uninterrupted 30-minute break’ because employees have only two options: leave the premises and go through the security check even though the security check may eat up some part of their meal break or stay inside the facility.”  The court found that there was enough evidence to permit the jury to decide whether the security check point impeded or discouraged employees from taking meal breaks.  And during the trial in April 2019, the jury ultimately agreed with the plaintiffs that the security check point implemented by Walmart discouraged employees from taking their meal breaks.

3. Recently, other cases attempted to allege the theory that employees are “discouraged” from taking meal breaks.

Recently there have been other cases filed against California employers alleging that a practice or policy “discourages” employees from taking their meal breaks.  One case involved Taco Bell where the plaintiffs’ alleged that Taco Bell’s policy of requiring employees to remain on the company’s premises while eating a discounted meal prevented the employees from being relieved for a meal break.  Fortunately, the court in that case held in Taco Bell’s favor as the employees were not compelled to purchase the discounted meals, as it was a voluntary benefit offered to the employees.

4. Employees must be relieved of all duty during a break.

A similar argument was made in Augustus v. ABM Security Services, Inc. where security guards sued their employer arguing that they did not receive duty free 10-minute rest breaks because they were required to monitor their pager at all times.  In Augustus, the Court ruled that “one cannot square the practice of compelling employees to remain at the ready, tethered by time and policy to particular locations or communications devices, with the requirement to relieve employees of all work duties and employer control during 10-minute rest periods.”  The Court made it clear that the employee must be “free from labor, work, or any other employment-related duties.  And employees must not only be relieved of work duties, but also freed from employer control over how they spend their time.”

5. Employers must review how all company policies may impact meal and rest breaks.

The Walmart case is a good example of how a security policy had major implications on a wage and hour issue.  California employers need to review their policies to minimize the argument that an employee was “discouraged” from taking their meal or rest breaks because of the various policies that pertained to them.  The case also illustrates the difficulties arising from allegations that an employee felt discouraged from taking a break because of a company security policy.  However, as the $6 million verdict in this case establishes, it is well-worth a company’s effort to review policies and address potential issues prior to litigation.